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The Interaction Between Migrants and Origin Households: Evidence from Linked Data

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The Interaction Between Migrants and Origin Households: Evidence from Linked Data VERY PRELIMINARY PLEASE DO NOT CITE The Interaction Between Migrants and Origin Households: Evidence from Linked Data Joyce J. Chen ∗ The Ohio State University Nazmul Hassan Dhaka University June 2012 Abstract Economists’ understanding of the effects of migration has been largely limited to what can be gleaned from separate surveys of migrants and their origin households. This is problematic when the interaction between the two parties affects patterns of resource allocation, above and beyond the direct effects of migration in income and household composition. Using a unique panel dataset from Bangladesh that includes linked data on migrants and origin households, we assess the cost of information asymmetries that arise with migration. Variation in migrant travel times is used to generate variation in the cost of communication between migrants and origin households. However, because migration, as well as the destination, may be chosen with information asymmetries in mind, two sets of instrumental variables are employed: lagged employment shocks at potential destinations and historical migrant networks. ∗ Contact information: Mailing Address – Department of Agricultural, Environmental and Development Economics, 324 Agricultural Administration Building, 2120 Fyffe Road, Columbus, OH 43210; E-mail – [email protected] ; Phone - (614)292-9813. Support from NIH grant 5R01DK072413 and the Initiative in Population Research is gratefully acknowledged. All remaining errors are my own. Introduction. Migration, both inter- and intra-national, has been increasing rapidly. Roughly 214 million individuals currently live and work outside their country of birth, an increase of more than 20% over the previous decade, and international remittance flows to developing countries far exceed official aid flows (International Organization for Migration, 2010). Within countries, rural to urban migration has experienced similar growth, accounting for two-thirds of urban population growth in Bangladesh (Afsar, 2003) and roughly one-third of national income in China (Ong, 2004). These trends have important implications for economic development, and considerable effort has been devoted to estimating the impact of migration on migrants and origin households. However, our understanding of the effects of migration has been largely limited to what we can glean from separate surveys of migrants and their sending households. This is problematic when non-pecuniary linkages between the migrant and the origin household persist, as it implies that the interaction between the two parties has an effect on resource allocation, above and beyond the direct effects of migration on income and household composition. In this case, data on both parties is needed to establish a complete picture of migration and its implications for economic and social development. This paper estimates the quantitative significance of non-pecuniary linkages between migrants and origin households. Outcomes of interest include remittances, business investments, household assets, children’s education, and health. Previous studies have documented the existence of such linkages (e.g. , Chen, 2006; Ashraf et. al. , 2011) but have not been able to examine the behavior of both migrants and origin households simultaneously. We focus specifically on the effect of imperfect information, created by the change in residence patterns: individuals who do not live in the same household will face greater difficulty observing the 2 actions of other members. This creates the potential for non-cooperative behavior, such that individuals maximize their own utility, taking the actions of others as given, rather than cooperatively maximizing a joint household utility function. This may also create a welfare loss, to the extent that strategic and productive allocations diverge. I estimate production and profit functions to determine the degree to which imperfect information creates inefficiency in household investment portfolios. Data are drawn from a unique panel, which includes linked data on migrants and their origin households, drawn initially from 14 villages around the country of Bangladesh. I outline a game-theoretic model in which the migrant can only imperfectly monitor the actions of his origin household and the origin household has imperfect information about the migrant’s earnings. Testable implications are derived based on variation in the degree of asymmetric information or, equivalently, the inherent cost of monitoring. Empirically, variation in migrant destinations and travel times creates variation in the cost of communication between the migrant and the origin household. However, because migration, as well as the destination, may be chosen with potential information asymmetries in mind, I utilize migrant networks as an instrumental variable. Additionally, I control directly for elements of the migrant’s underlying skill endowment, as proxied by height and cognitive ability. This line of research has important implications for policy and program design. If household/family members are inclined to conceal information from one another, then the transparency of income sources becomes an important policy consideration as well. For example, proceeds from microloans and microenterprises would be relatively easy to conceal, whereas cash transfers from government agencies and NGOs would not. The channel through which program benefits are provided may have a separate effect on the allocation of resources within 3 the household, which has implications for both program design and implementation. At the macro level, policies that promote migration over longer distances ( e.g. , to major cities vs. smaller urban centers, international vs. domestic) may exacerbate problems of imperfect information, and this should be factored in to any cost-benefit analysis of policy alternatives. Finally, this research will reveal the quantitative importance of collecting linked contemporaneous data, versus the standard practice of surveying migrants and origin households independently. Data and Context. Data are drawn from the Nutrition Survey of Rural Bangladesh, which was first conducted in 1981/82 across 14 villages in Bangladesh. The first follow-up was conducted in 2000/03 and tracked all respondents from 1981/82 still living in the country with an attrition rate of less than 2%. A third survey was completed in December 2008, again tracking all original 1981/82 respondents as well as all new respondents from 2000/03. The attrition rate was slightly higher this time, just over 4%, in part due to Cyclone Sidr, which devastated Bangladesh in November 2007. However, unlike the previous follow-up, and unlike most existing panel surveys, temporary migrants were also tracked, and survey modules were administered to them at their destinations, providing linked, contemporaneous data on migrants and their origin households. Unfortunately, given funding limitations, migrants living outside Bangladesh could not be tracked. For the purposes of this survey and paper, “temporary” migrants are defined as individuals who are “currently absent” for work purposes but still reported as members of the household. In practice, however, migration appears to be a long-term and perhaps permanent arrangement for the majority of these individuals. Approximately 86% of temporary migrants 4 report being away for the entire year preceding the survey, but a large proportion (99.5%) report visiting the origin household weekly, irrespective of travel cost or time. Of course, the small geographic area of Bangladesh facilitates easy travel within the country; 75% of migrants report being within four hours of their origin household and transportation costs roughly equivalent to (or less than) the average daily wage. Model. We conceptualize the negotiation between spouses as a game with two stages, as depicted in Figure 1. First, the migrant can choose to either fully pool the income earned at the destination with the origin household, or he may choose to conceal part of it. Based on his choice, the migrant then offers his spouse a contingent contract, in which her payment is based on her observed actions. Note that, as long as a cooperative agreement provides the migrant with weakly higher utility than the non-cooperative arrangement, it is in his interest to design the contract to be appealing to his spouse. The optimal contract, therefore, reflects the migrant’s assessment of whether his spouse will choose to cooperate and the actions she will take if she does not cooperate. However, concealing a portion of his income will effectively reduce the migrant’s bargaining power and thus shift the optimal contract in favor of the non-migrant. The trade-off, of course, is that the migrant retains the concealed portion of his income and may allocate it without engaging in any household bargaining. The non-migrant can choose to either cooperate and follow the contract or to disregard the contract and play non-cooperatively. At the time that she makes her choice, the non-migrant does not know what action the migrant has taken, but she does have complete information about the structure of the game. Thus, her optimal response will reflect her beliefs about whether the 5 migrant will chose to conceal any income. These beliefs, in turn, depend on the contract offered by the migrant and characteristics of the migration episode that may affect the overall capacity for monitoring. At the end of the game, each player observes the choices of the other player. If the non-migrant
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